Biden’s student debt relief plan: Four issues.

Engaging Title: Biden’s New Plan for Student Loan Forgiveness: Challenges and Consequences

Now that the Supreme Court has left President Joe Biden’s plans for sweeping student debt forgiveness in tatters, the Biden administration is plotting new ways forward for the effort.

Some changes will take place immediately. Biden announced that student loan holders would have a one-year “on-ramp” period, starting in October, during which they’ll face no consequences for missing payments, for example.

Four Problems with Biden’s Second Attempt at Student Loan Forgiveness

1. Still Vulnerable to Legal Challenges

Just because the Biden administration is choosing a new legal basis for student debt forgiveness, that doesn’t mean it will avoid the legal pitfalls that ultimately took down the last plan.

Biden’s team had used the Higher Education Relief Opportunities for Students Act to underpin the original student loan forgiveness program. That 2003 law was written to relieve student debt burdens for soldiers serving overseas.

The Biden administration had argued that the pandemic, which it declared over in May, provided the basis to invoke the special relief powers of the HEROES Act. But the Supreme Court disagreed.

Now, Biden is eyeing the Higher Education Act of 1965 to give him the authority to forgive some student loans.

That law “could be used only for a far more limited number of debt holders, and even this would raise new legal questions,” wrote Jonathan Turley, a constitutional law professor at George Washington University.

The Higher Education Act does include language giving the education secretary the ability to adjust student loans “under certain circumstances,” but precisely how much he can do remains unclear.

The use of the law for the second iteration of student loan forgiveness could still be vulnerable to the same type of legal challenges that felled the first: claims of executive overreach without a legitimate basis in statute.

2. Incentivizing Students Not to Pay

The Biden administration had repeatedly extended the pause on student loan repayments that began during the pandemic, meaning many Americans with student debt haven’t had to make payments in years.

That is set to change in October, when, due to the debt limit deal negotiated by House Republicans, repayments are set to begin.

But Biden announced that his administration would allow borrowers an “on-ramp” year to get back into the habit of paying for their loans.

Borrowers who miss payments will not be penalized for doing so. Their credit won’t be harmed, they will not be referred to debt collectors, and the threat of default will be off the table.

“During this period, if you can pay your monthly bills, you should,” Biden said Friday during a speech about the Supreme Court’s decision.

Without any consequences for people who don’t pay their loans during the next year, however, some borrowers may not see an incentive to restart payments that they haven’t had to make since the pandemic.

3. College Tuition Could Rise

Biden’s plan also includes limiting some borrowers’ payments to a certain percentage of their income.

His administration had already set in motion the process to cap how much student loan holders were required to pay each month at 5% of their disposable income — meaning students who graduate into lower-paying jobs won’t have to pay nearly as much as those who land high-salary positions after school.

Knowing they’ll never be saddled with payments they can’t afford, some prospective students may borrow more than they otherwise would to go to college. And that, in turn, could inspire colleges to hike their tuition.

The generous income-based repayment plan could have effects “for higher-income students who might otherwise cover some of the costs out-of-pocket,” the non-profit organization Arnold Ventures wrote in a comment on the proposed Biden rule, as well as for “lower-income students who might otherwise seek to minimize their debt loads.”

“For institutions, the temptation to encourage borrowing to further pad tuition revenue may be too strong for many to resist,” the group wrote.

Biden’s plan would also continue the practice of forgiving the balance of student loans after 20 years if the borrower has made payments. That means prospective students considering how big a loan to get could sign on for large debts, knowing they’ll never pay more than 5% of their income toward it and that it will go away in 20 years.

For colleges and universities, that could provide an opportunity to charge exorbitant amounts for tuition, seizing the chance to have taxpayers pick up the tab for whatever goes unpaid under the new system.

4. The Price Tag Just Went Up

Even though fewer people may feel debt relief under the new plan, the cost of student loan forgiveness efforts could still rise.

That’s because Biden pledged that some elements of the plan, such as the 5% income repayment cap, would apply to all future borrowers as well as former ones.

And although the rest of Biden’s plan is yet to be settled, with the Education Department now working on ways to offer debt relief under the authorities of the Higher Education Act, it will undoubtedly add to the total price tag of loan forgiveness efforts under the Biden administration.

The University of Pennsylvania Wharton School’s estimate of how much the income limits on repayments will cost is as high as $360 billion over the next decade, with more costs to come if the program continues indefinitely.

The cost of the student loan forgiveness plan that the Supreme Court struck down would have been $400 billion over 30 years, the Congressional Budget Office said.

Read more: Biden’s New Plan for Student Loan Forgiveness: Challenges and Consequences